TEST # 2 Extra Credit: Each year, Brother Company purchases 40,000 zippers that it needs for production of its backpacks. The supplier notified Brother Company that a price increase will take effect shortly, which will bring the price of the zipper to $2.50 per zipper. Brother Company is considering the use of idle facilities to produce the zippers. The annual production costs to produce the needed 40,000 zippers are as follows: Direct materials $17,500 Direct labor 30,000 Indirect production costs variable 14,000 Indirect production costs fixed 33,500 The idle facilities could also be rented out at an annual rent of $12,000. All the fixed indirect production costs are avoidable. Brother Company is considering all its options regarding the zippers. Requirements: 1. Should they start to make the zippers in their idle facility, should they continue to buy the zippers, or should they continue to buy the zippers and rent the idle facility? Discuss in detail; show all calculations for every alternative Brothers Company has regarding the zippers. 2. What should Brothers Company do? 3. Discuss the pros and cons of renting the idle facility. Fudge Factory has three product lines, Chocolate, Penuche, and Peanut Butter. The following information is available: Chocolate Penuche Peanut Butter Sales $100,000 $90,000 $89,000 Variable costs 76,000 48,000 79,000 Contribution margin $24,000 $42,000 $10,000 Fixed costs Avoidable 9,000 17,000 7,000 Unavoidable 5,000 9,000 8,000 Operating income $10,000 $16,000 $(5,000) Requirements: 1. Should any product line be eliminated/ discontinued? Explain why or why not by showing your calculations and the impact on operating income. 2. If the Peanut Butter product line is discontinued and the space formerly used to produce the Peanut Butter product line is rented out for $20,000 per year, will the overall company operating income increase or decrease? By how much? Should the Peanut Butter product line be eliminated if the space can be rented for $20,000 per year? Show all your calculations